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Border Adjustment Tax Just Complicates Tax Code Even More

Comments | Posted in mi perspectives | By MI President Brett Healy | Posted February 20, 2017 5:57 AM

With fiscal conservatives in charge, why raise taxes on anyone?

Federal Tax Reform Should Lower and Simplify Everyone's Taxes, Not Complicate The Tax Code Even More

February 20, 2017

By Brett Healy
MacIver Institute President

With President Trump's election in November and a Republican-controlled Congress came high expectations that finally the American people would see long-term and meaningful tax relief.

Unfortunately, the tax reform discussion in DC since the election has quickly fallen back into a familiar bad habit and the politicians have completely missed the lesson of the 2016 election.

The November 2016 election was above all else, a rejection of Washington DC and its wicked fiscal recklessness. Trump won because a majority of the country rejected the sky rocketing cost and broken promises of Obamacare. Trump won because the American people believe it is unconscionable that our country would be $19 trillion dollars in debt and that we would pass that financial time bomb on to our children and our children's children. Trump won because common-sense middle Americans decided that they were tired of being told that the government must always grow and that it is impossible to downsize their government. Trump won, in short, because taxpayers believed he was the only person capable of standing up to the professional politicians in DC and finally restoring fiscal sanity and prudence to our government.

pull quote dantes nine circles of hell.png

Washington has, of course, decided to ignore this obvious lesson and quickly resorted to its evil ways by proposing a plan that would muck up and further complicate the tax code all in order to reform the tax code.

While Speaker Paul Ryan expressed his desire in an interview with MacIver last week to have individual taxpayers file their income tax return on a postcard, the tax reform discussion on the corporate side of things has been anything but simple and straightforward.

Everyone seems to be in agreement that the current 35% corporate income tax rate is too high and because it is so high it encourages corporations to park profits overseas. There is little agreement however on what we should do to fix this problem.

Enter the innocent sounding "Border Adjustment Tax." I was hopeful when I first heard the term a border adjustment tax that it would completely surround my house, wall off my earnings from the evil IRS and allow me finally to live in a free market and genuine capitalist peace. How naive of me to think that a border adjustment tax would simplify our tax code.

According to tax experts, a border adjustment tax would eliminate the tax deductibility of expenditures on imported goods and services including the imported raw materials used in manufacturing here in the United States and exclude from taxable income gross receipts derived from exports. This attempt to reform the federal tax code would supposedly raise 1 trillion dollars in tax revenue over 10 years, a trillion dollars that would go to pay for other tax cuts.

Earlier this month, The Tax Foundation hosted a roundtable discussion in Washington about the border adjust tax and the effects it would have on the economy. During this event, William Gale, Co-Director at the liberal-leaning Urban Brookings Tax Policy Center, told the crowd gathered that the border adjustment tax as proposed has never been implemented anywhere in the history of the world and that it makes the government a shareholder in every corporation.

The government a shareholder in every business? Wait a second. That doesn't sound like tax reform. Most entrepreneurs would say that the government as a shareholder sounds more like Dante's nine circles of hell.

While the crowd was trying to wrap their heads around Gale's profoundly disconcerting statement, the conservative on the panel, Douglas Holtz-Eakin, jokingly asked him if he was trying to kill the proposal. Let's hope so.

Given the rare and historic opportunity to fix this country's fiscal shortcomings for generations to come and to finally turn the tide on our debt, why would we be discussing new ways to tax people, companies and commerce that would make the federal government a partner in your business?

Instead of talking about shrinking the size and scope of the federal government and the spending cuts that are needed to free all Americans, the discussion in DC is centered on a new tax system that has never been tried before anywhere in the world?

Does anyone in middle America feel good about Congress trying out a new tax system? Let's be clear - the reason that the US tax code is over seventy-four thousand pages-long and that the country is $19 trillion dollars in debt is that the federal government, specifically Congress, has for too long picked winners and losers. Instead of giving all of us a tax rate that is low, broad and comprehensive, federal officials have handed out special favors, exemptions and deductions to the special interests and political insiders with privileged access. The federal government has not earned the trust of the taxpayer to try something new.

What do you think the professional politicians will do with a trillion dollars that the border adjust tax will raise? Fund more government and pet projects? Me, too.

The sole purpose of tax reform should be to lower everyone's tax burden, simplify our leviathan tax code, allow taxpayers the "privilege" of keeping more of their hard-earned money and walling off the government from picking winners and losers. Nothing more, nothing less.

While DC may have already conveniently forgotten the true lesson of the 2016 election, let's hope President Trump remembers why the rest of America sent him there - to stand up to the entrenched insiders and restore fiscal sanity to our country once and for all.

Any other purpose is just another DC scam.

The discussion so far in DC has focused on how do we adequately fund the out-of-control federal government and not enough on how do we lower and simplify the taxes of every American.

Tax reform that is primarily worried about coming up with enough taxpayer money to fund current obese levels of government spending is misguided.